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Starting a new business can be both exhilarating and scary. There can be a great sense of accomplishment when you’re able to create a new company and get it off the ground. But at the same time, there are serious financial risks involved, to you and to any potential investors. It might be tempting in some cases to simply license a product you’ve created to another company to manufacture it. There’s certainly less risk involved overall, but there are also cons to that idea when it comes to control and ownership of what you’ve created.

So which way is better? When is it more beneficial to simply license a product rather than forming your own business to manufacture it?

We’ll be taking a look at both scenarios, and their advantages, below.

Goals

It’s important to figure out first what you want to accomplish with your product. Do you want to bring it from development to fruition yourself, and control its entrance into the marketplace? If your answer is yes, then starting a business to manufacture it is the best way to do that.

On the other hand, if your goal is simply to create the product and then have someone else worry about the rest of the process, you might be better off in licensing it.

Income

Some inventors become wealthy off of their inventions, but many do not. Once they’ve licensed the product, there’s almost certainly some income that will be generated by that licensing, but it’s rarely enough to live on exclusively.

Are you comfortable accepting a more modest income vs. putting in the sacrifice it often takes to start a business?

Not that manufacturing the product yourself is a guaranteed path to financial stability, by any means. For every new invention that thrives with consumers, there are many that don’t.

So the questions are, what level of risk are you willing to take, and what amount of compensation are you willing to accept?

Pressure

There’s no doubt that running a business puts an entrepreneur under significant stress, no matter how successful the business may be. In fact, success often brings more pressure to the owners, as they try to maintain and expand it. Little to none of that pressure will apply if you license your product to someone else.

So are you someone who can take, or even welcome, that new level of stress and turn it into a positive? That’s an important question when you consider licensing vs. manufacturing.

Resources

If you’re leaning towards manufacturing your product yourself, it’s a good idea to take stock of what you have on hand to do so.

Do you have the capital? If not, do you have the investors to help provide it? Have you prepared a pitch for your product that will get their attention? Do you have the means to live independently of your business while it gets up and running?

There are a lot of pieces of the puzzle that need to be in place before you can move forward with starting a company, especially if you intend to manufacture the product yourself. But there are other options. Instead of building a business that’s designed to handle manufacturing, build the business to manage distribution and supply chain, and turn to a company like Pivot International to do the engineering and manufacturing for you.

Legalities

Obviously, there are legal matters involved in both licensing a product and manufacturing one, but there’s a vast different in what you need to do each one.

When you license a product, it’s absolutely necessary to have a patent and a copyright. A trademark is helpful as well, but it’s not a requirement. No one is saying that it’s easy to get those things, but it’s easier than what you need to start a business.

Businesses will need a legal team to handle contracts and settle disputes in addition to all of the other basic requirements.

Do you have the stomach to fight legal battles if need be? If the answer is no, perhaps leaving it to the company you license your product to is best.

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Mid-Continent Custom Electronics (MCCE) provides design, engineering and manufacturing expertise for projects of all sizes in a broad range of industries. From Original Design Manufacturing (ODM) to Electronic Manufacturing Services (EMS), our products are manufactured in the USA.

We support you from concept to production or wherever you need our expertise.